On Surplus, Part 3: How Surplus (Wealth) is Created

Ed. note: You can find Parts 1 and 2 of this series here and here.

Good Behavior

The ethos of the previous two installments of “On Surplus” might be summed up with a few lines from Thoreau: “The greater part of what my neighbors call good I believe in my soul to be bad, and if I repent of any thing, it is very likely to be my good behavior.  What demon possessed me that I behaved so well?”

What demon indeed?

I have emphasized in parts 1 and 2 the aspects of my life and the life of my family that sits on the outer cusp of the high-surplus life which is characteristic of the middle class, a class that is also on the decline. More people, I am suggesting, are being pushed from the world of ultra high-surplus and will no longer be able to engage in its brand of good behavior. The choice for us on cusp is either to hang on by our fingernails (in between using them to pull outlaw dandelions), or to repent for our previous “good” bourgeois behavior as we reject the American Dream before it abandons us–the dream, as Roosevelt once put it, of ever increasing “enjoyment of the fruits of scientific progress in a wider and constantly rising standard of living.” The promise of America: you will have more wealth each and every year. For reasons few have yet to comprehend, let alone to accept, America can no longer keep this promise.

Despite my subtle signs of rebellion (look how my squash garden has expanded since my last installment) and a radical pose I sometimes strike, I do have some repenting to do for previous good behavior.  For there was a time in my past when I was a model maker of surplus, which I produced with the grim determination of a honey badger, but also with devilish delight in my own sense of my limitless capacity (my body would not age just as the world would never run out of oil).  The demon that possessed me was the demon of residential asphalt shingling.  I roofed houses.  As others familiar with roofing know, it is a demon of a job, hot as Hades, with high risks and high rewards, where an eighteen-year old can sell his knees to the devil and where manic speed and feverish effort rule the day.  Because of its highly repetitive artless nature, and relative lack of complexity, nailing shingles is one of those things in life where effort and the expendeture of energy, alone, appear to be the source of surplus.   As a roofer, I was a frenzied producer of surplus, a true model for an entrepreneurial economy based on hard work and bold risks.

While I had previously delivered newspapers, mowed lawns, and detassled corn, my first direct experience with actual surplus, began when I started roofing as a fourteen year-old.  The story of how I came to be a roofer is interesting enough, I think, and indicative of a very particular, but telling, American experience as well, so I will share more of this story below.  But for now let me note that my years as a self-employed production roofer taught me a number of economic lessons that appear to be missing from the main public discourse about economics, and thus about where surplus, and therefore wealth, come from.  Economics, to jump ahead, is at root far simpler than it is made out to be.  For in reality, it is a matter of using energy to turn raw materials into useful products.  Creating surplus, and then ever greater surpluses, is a matter of using more energy to turn more raw materials into more useful products.  There isn’t much else to it than that.   Or as Charles hall and David Murphy explain, “for an economy to sustain real growth over time there must be an increase in the flow of net energy (and material) through the economy.”[i]  That is another way of putting it.

The Idealists

Let us backtrack and recall the larger context of these essays on the topic of surplus.  We are asking where wealth (surplus) comes from, and for this particular reason: if we don’t know where it comes from, we will be looking in the wrong places for cures and culprits alike in the event that our wealth disappears—which, I am suggesting, it is.  As I have been arguing, our economic and political discourse is, unfortunately, custom- made for misapprehending the real origins of wealth and instead finding political villains to blame for its waxing and waning over the years, and now, finally its slow but inescapable disappearance.  Until we as a nation can get our heads around the fact that there may be no simple political (blame-based) solution to the end of the American Dream, our politics can only head further down the path being blazed by Donald Trump today.

Because the origin of surplus and wealth are quite simple, the fact, moreover, that few are able to identify its fundamental basis has a lot to do with the way wealth is discussed in our politics, university courses, and in even the best mainstream journalism.   So let us look briefly at the (misleading) discussion about the origins of wealth and explanations for its occasional decline that one is likely to hear, today, unless he or she is quite persistent in pursuit of a true alternative.

While the issue of the economy has never been too far from the main political discussion of the day, starting with Reagan politics and economics became inseparable.   We are told to ask ourselves whether we are better off now than we were four years ago  before we cast our vote.   To cite that unfortunate cliché that passes itself off as good political wisdom, “it’s the economy, stupid.” The cause of our preoccupation with economics and the economy is rather simple: our national prosperity (or at least our assurance of its permanence) began to disappear sometime in the 1970s.  Reagan’s driving question—when he wasn’t baiting the USSR or blowing dog whistles to the constituency first assembled for Nixon’s “Southern Strategy”—was the same as ours:  Where does wealth come from?; but his question was also different.  Like any American politician able to rise above the school board, he insisted on principle that our prosperity is a kin to a divine right, and will, if we are properly faithful, increase into perpetuity.  His question, then, has to do with the details of this faith and its rituals.

Here’s how Reagan asks and answers this question in his first inaugural address:

“If we look to the answer as to why for so many years we achieved so much, prospered as no other people on Earth, it was because here in this land we unleashed the energy and individual genius of man to a greater extent than has ever been done before.  Freedom and the dignity of the individual have been more available and assured here than in any other place on Earth.  The price for this freedom at times has been high, but we have never been unwilling to pay that price.”

Often endorsed by conservative economists, Reagan offers a little morality tale about free people with the natural incentive of self-interest; they will, if allowed, prosper, and in so doing will create wealth for themselves and opportunity for everyone.  Only a dispirited populace, and bad laws and regulations–and the erosion of values and spirit that bad laws and regulations cause–might get in the way of the wealth-creating destiny that stands before free and faithful people.

On the flip side of this formula is the warning that wherever and whenever people have not created wealth, it is, by necessity, because they were not sufficiently free.  If too many people have been swallowed by their couches or are milling about the welfare office, it is only because we (or rather the government) have removed too much incentive and curtailed the freedom to compete on the open market and be rewarded accordingly.  Reagan thus continues:

“It is no coincidence that our present troubles parallel and are proportionate to the intervention and intrusion in our lives that result from unnecessary and excessive growth of government.”

We could further boil it down like this:  How did America create so much wealth in the past?  The hard work of a free people unleased and left to themselves.  Why has this prosperity not grown as it should in recent years?  Because people are not as free as they once were (mainly because of regulations and taxation).  From here it is a short jump to question, unfortunately, we’re really asking in this country once political discussions start heating up: Who took my money?  The conservative answer: the government took your money with high taxes, thus curtailing freedoms and burdening people with regulations.  This ultimately created a culture with declining incentive and increasing dependency.  Welfare queens and hamstrung “job creators.”  And now immigrants as well.  Inequality, George Will declared in an infamous article at the time and again as recently as 2015, is good for the economy, for it at once ensures that the elite are fairly rewarded, while providing a shimmering example for everyone else to pursue.  Inequality, argues Will, is what has driven the American economy from its outset.

There is a sense in which a liberal like Paul Krugman might appear to explain the origins of America’s great wealth according to an opposite view of history.  Looking at the arc of economic history which reached a peak in overall wealth and democratic well-being in the post-war era, Krugman argues that our most prosperous times occurred when there was relative income equality; income inequality, the very thing that the Reagan emphasis on low taxes and unfettered freedom will cause (and that George Will will celebrate), in contrast, has historically resulted in recessions and depressions.  Political scientists refer to this post war era of egalitarian prosperity as “the Great Compression”—a compression of wages into a relatively egalitarian center.   The Great Compression, Krugman summarizes, “was also a time of unprecedented prosperity, which we have never been able to recapture.”[ii]

What forces lay behind this great compression and its demise?  Was it technology?  Deep structural changes in production or trade?  An ineluctable business cycle?  No. According to Krugman it was first created by our conscious choices, policy, and more specifically the high-tax rates that found their origin in Roosevelt’s new deal and wartime economy, but have abandoned since.  It was a result, moreover, of the liberal willingness to invest in public works, job training, the GI Bill, and all the other programs that Reagan and other conservatives equate with a loss of freedom and with economic decline.  To the question, who took my money?  Krugman would argue that the rich took it by refusing to pay their fair share of our collective tax burden, and that Reagan and his ilk pulled-off this heist under the banner of unfettered economic freedom and a counter-factual pro-growth theory of economics.

Who is correct?  If I had to choose, I would gravitate towards Krugman’s view, but for moral rather than historical reasons.  My guess is that inequality and equality both have played a crucial role, at times, in our economic history, but never, I would add, the leading role (about this I will say more below).  Of course neither Reagan’s nor Krugman’s position provides a comprehensive understanding of where wealth really comes from in all its many aspects.  Rather both sides are reacting to what they perceive as the excesses of the other.

For a more comprehensive, and in some ways admirable explanation of the origins of increased wealth and surplus since around 1820, we might turn to William Bernstein’s The Birth of Plenty: How the Prosperity of the Modern World Was Created.

This book articulates what both sides believe in-common, while correcting the way political arguments might narrow the broader range of history to a single point or campaign message.  For according to Bernstein the wealth of nations and basic human welfare require four factors: “property rights, scientific rationalism, effective capital markets, and efficient transport and communications.”  More familiar subcategories lie within each of these main four factors.  Property rights, for instance, includes equality under the law and the important provision that the fruits of one’s labor cannot be arbitrarily taken away from an entrepreneur.  This is a prerequisite for incentive.  Scientific rationalism is necessary for the constant innovation we have come to expect, and underwrites a pragmatic and technocratic view towards accumulation, while effective capital markets include a secure and intact banking system and agreed-upon laws of trade.  Transportation and communication are necessary for the sort of trade that, beginning with Adam Smith, is viewed as an essential component of the wealth of nations; as a minor subcategory Bernstein includes the explosive power of coal and then oil and natural gas as the power behind our efficient transportation and communication systems.

Although meant as a comprehensive history, I also take Bernstein’s purpose to be directed towards liberals and conservatives alike who want to over-simplify economic success into one single feature like incentive, or deregulation, or who might fail to value the necessity of a balanced approach lost to popular consciousness by our current situation of permanent campaigning.  As Bernstein summarizes it, “The absence of even one of these factors endangers economic progress and human welfare; kicking out just one of these four legs will topple the platform upon which the wealth of nations rests.  This occurred in eighteenth-century Holland with the British naval blockade, in the world’s Communist states with the loss of property rights, and in much of the Middle East with the absence of capital markets and Western rationalism.  Most tragic of all, in much of Africa, all four factors are still essentially absent” (17).  Thus also the unquestioned goal of economic development: import our institutions and belief system; undo cultural traditions that put limits on consumption or the making of money; break down any race or gender barriers to consumption.  As Bernstein puts it, the only thing that could cause the one thousand year reich of economic growth is a slackening of demand and access.

I won’t say too much right now about the shortcomings of Bernstein’s explanation, which I have written about in previous pieces.  Briefly, though, part of it boils down to his failure to take the “long view of history” I described it in Part II.  Bernstein believes that premodern and pre-industrial life lacks basic human welfare, and at the same time believes that modern prosperity and our high surpluses are permanent, if only we pay attention to the four pillars of wealth.  These, he explains, are like a key that has unlocked the secret door to wealth; and once unlocked wealth will rush forth like a swollen river.  A thousand years from now, he predicts, the economy will still be growing and humanity will be yet more wealthy (and well-off, even happy).   He is suggesting, without thinking through the implications, that there are no limits to how much surplus humans can amass.

The other half of Bernstein’s shortcomings can be described by returning to the title of this section, “The Idealists.”  Despite considerable differences, especially between Krugman and Reagan (liberals and conservatives) they share with Bernstein and almost any other prominent economist or economic approach what I will refer to as an Idealist view of history.

In common parlance, an idealist is someone with strong beliefs about the possibility of a better world—the opposite, in other words, of a realist or a cynic.  This is not the way I am using the term idealism here.  I am using the concept more philosophically, where historical views are often divided between idealism on one hand, and materialism, which in this context does not refer to the love of materials accumulation, on the other.  Let me explain.  In philosophical contexts, or in theories of political change, Idealism refers to the belief that ideas are the driver of history.  A good society, in other words, is the product of good ideas or ideals.  We are who we are, and have what we have, because of our beliefs and the institutions that consecrate those beliefs.  Because, according to our lore, America was founded on a set of principles and beliefs, America is an overwhelmingly Idealist nation (in the philosophical sense).  As Margaret Thatcher is said to have quipped, Europe was created by history while America was created by Philosophy,[iii] the implication being that we Americans have taken history into our own hands and formed it into a shape modeled after our ideals, while Europe was less “proactive” and was buffeted by historical forces which it hadn’t the ability to control.  In this way Reagan would argue that America is great because of our celebration and practice of unfettered freedom, and becomes less great when we sacrifice the ideal of freedom; Krugman would argue that equality and appropriate government investment is what made America great and that we become less great when we sacrifice this ideal.  Both explicitly argued that we could return to our peak prosperity simply be returning to our ideals.  As Krugman exclaims as he declares that past prosperity is well within our grasp today, “we did it before so there is no reason we couldn’t do it again.”  That’s the nice thing about ideals, as compared to history.  Ideals are infinitely repeatable under almost any conditions; history is far trickier and more complex.[iv]

Materialism is most closely associated with Marx, but it doesn’t have to have a Marxist orientation.  It maintains that the material conditions of people’s lives—whether they live in a place abundant in natural resources, or with a tradition of conquest and material opportunity—has a great deal to do with what they believe and whether or not they thrive.  Materialists are often accused of being relativist, but I think the word “contingent” is far more appropriate.  What you believe, how and what you worship, your views about the individual and its relation to the community—these have more to do with where and when you live, how you feed yourself, and what ecological pressures you face than they do with autonomous beliefs.  Materialists are skeptical of the “fantasy” (I would say) that people sit down, consider their options, and then choose what to believe.  Not only is this a poor way of explaining  the customs and rituals of the Kalahari Bushmen, it is (because materialism has a built in humility) inappropriate to apply to ourselves.  We too are products of our age and our place and believe what we do largely because of what we do, what opportunities we see, and where we get our food and shelter.

But very few people, and none with much power of an extensive audience, question Idealism these days, even though there is a growing materialist subtext in almost any reputable sociological study or attitude.  About the power of ideals and the institutions built in their image, Bernstein declares, “build it and they will come”: “once a nation has reached that stage [where it adopts and embraces the four pillars of wealth], it has broken the chains of poverty.  Economic growth, if you will,[v] becomes encoded into its very culture” (49).   Citing Keynes famous “disquition on the importance of economic ideas” at the end of The General Theory, Krugman directly expresses his own Idealism: “the true scarcity in Keynes’s world—and ours—was therefore not of resources, or even of virtue, but of understanding.”  More Idealistic, yet, is Krugman’s finishing flourish: “some people say that our economic problems are structural, with no quick cure available; but I believe that the only important structural obstacles to world prosperity are the obsolete doctrines that clutter the minds of men” (The Return of Depression Economics 191).  We need only follow our ideals, in other words, and the world might by our oyster.

We need to pause and consider this phrase and the assumptions standing behind it.  One of the most respected voices of American liberalism is arguing in as direct a way as possible that ideas create wealth and thus surplus.  In his weekly column, he mainly elaborates on this theme in mainly predictable ways and creates a great deal of take-home wealth for himself in the process.  Like Bernstein, he cannot imagine any instance in which there could be a cause of economic decline, at least in nations that have broken the ancient chains of poverty, not caused by “obsolete doctrines.”  As Bernstein affirms, the only thing that could put an end to permanent economic growth, even for one thousand years, would be a failure of will; ecological or demographic forces could not put an end to the ever accumulation of greater surpluses (375).

If, as I am arguing, wealth is a matter of using energy to turn raw materials into useful products, this is an astounding claim, from people, I dare say, who never roofed a house—or worked as a logger, miner, or in the field of heavy industry.  From this latter more material perspective, with lungs filled with dust, ears pounding from constant noise, and head swimming from heat exhaustion, all idealist doctrines are obsolete.  Only pushing-on, with great energy, resources (and waste) might we maintain our surpluses; and sometimes that is not possible.

Rooftop Materialism

So back to my story of roofing.  My father, as I have previously discussed, was a university professor, but also a renaissance man with a number of talents and interest, and an irrepressible sense that he could figure anything out for himself, which for better and for worse–and for richer and for poorer—was passed down to me.  When I was a freshman or sophomore in high school, he determined that we needed a new roof on our house.  After receiving a couple of hours of instruction from an out-of-work union carpenter we knew, my dad could see that installing asphalt shingles did not take a whole lot of skill and he proceeded to put me and my older sister to work.  Hammering together for a few weeks, and learning as we went, we put a new roof on our house.

I was of the age, then, at which I was interested in having my own income–and both my father and I, entrepreneurs and opportunists by nature, saw the potential in roofing, or at least were to over the next few years.  Did I go seek employment with an established roofing company?  Of course not.  We were to Thoreauian for that.  We decided instead to start our own roofing company.  The next summer, at any rate, family friends who were financially struggling also needed a new roof, so we plied our newly learned skills on top of their house.  Another neighbor saw what we were doing, and asked if we could do their roof as well.  I don’t recall when, exactly, Lindberg & Son Roofing was formally born, but I do know that the following summer we did about six roofs as I took on more and more of the actual work myself, and that I hammered-out about twelve roofs the next summer, and about twenty the year after that.

The entrepreneurial part of the endeavor came pretty easily, or at least I remember it as such.  But the work was physically hard and involved masses of materials—thousands of pounds of waste into a dumpster, eighty pound bundles of shingles, up and down the ladders, a basic rain shedding covering for a family’s material possessions.  The part of me that believes effort will always prevail–and that has thus made impressive mistakes amidst a heady brew of ambition and overshoot, unchecked enthusiasm and great bursts of energy–was forged by hours of hammering in rooftop heat where temperatures can easily climb to 120 degrees.  To be honest about it, the roof was my masculine proving-grounds, and probably the scene of Oedipal overcoming; there was no alienation on the roof, at any rate, none of the complications that beset a philosophically-minded adolescent; there was just me and the scorching sun, racing the clock, battling fatigue, feeling tough, strong, and tan.  I believed myself an all-powerful and unstoppable roofing machine, and was rewarded for my endurance and effort with more money than a teenager should ever make.  By the time I was in college, I was hiring friends to work with me, and “Lindberg & Son Roofing” was pounding out a roof per day, sometimes even two.  During the summer after I graduated from college, the record-breaking hot and dry year of 1988, we did about seventy-five roofs in three months and I left home in September for a year of reading and surplus debauchery in Minneapolis with about thirty-thousand fresh dollars in my pocket and an even larger sheaf of life-lessons, both true and false.

One of the lessons I have alluded to was based on the fact that in roofing effort and energy expended can (if you are paid by output and not hourly) be roughly equivalent to income, for production roofing is about speed.  If you can increase your speed from about 1 square (one hundred square feet) per hour to about 4 squares per hour, your income might go from $20/hr. to $80.  To the extent that life is like a roof (which it both is and isn’t) this was a valuable lesson about energy–and surplus.  As the owner of the means of production, I extracted surplus value from my crew, which got paid  an hourly rate that represented only a portion of the money their work brought in.  I took the rest.  This is the essence of capitalism, and my roofing experience made Marx easy for me to understand.

I have skipped until now a key episode in this story–one which speaks directly to the issue of energy and economics, and a two-century trend towards increased automation.  When I first started roofing, like everyone else at the time, I hand-nailed shingles, four roofing nails per shingle, each one driven in with a single well-aimed blow.  There was a skill to this, and learning to do it quickly and efficiently contained some satisfaction of the sort shared by people who effortlessly toss pizza dough, lay bricks, or balance trays full of steaming food on a single arm.  When I was just getting serious about roofing, I had the chance to talk to some older, lifetime roofers, who told me that a square an hour was a good rate for putting down asphalt.  I immediately began timing myself.  I dedicated myself, simply by moving faster and using more practiced and repetitive motions, to become faster and faster–to the point where I could easily average around a square and a half per hour over a whole roof.   I was a child of my time (the 80s), and the goal of course was to make more money (it was no wonder that I could always afford the best pot); but there was more to it than just that.

But around that time, I started waking up in the middle of the night with my fingers tingling and my shoulder aching.  At work, some days, the fingers in my right hand would go numb as I swung the hammer, over and over again.  A trip to the doctor revealed a condition I had never heard of before, but which is now commonly understood—carpel tunnel syndrome.  With too much repetitive motion and percussion the tendons in the wrist swell, cutting off blood to the nerve running through the same “tunnel” on its way to the fingers.  I had to stop pounding–that was the only cure.

At the same time, as fate would have it, pneumatic roofing nailers were finally becoming reliable.  Earlier models had jammed too often.  That, along with their expense, made them unable to compete with a skilled hand-nailer.  The $1000 I invested in a couple of nailers and a compressor was a huge investment for tiny Lindberg & Son Roofing, but I soon realized that I could increase my rate from about a square an  hour to four or five squares per hour.  As I raced my previous best times, flying across the roofs with a seventeen-year old’s energy augmented by compressed air and a simple machine, I amused myself by calculating how much I had earned in the last fifteen minutes.  Speed was all that mattered, and now it could be achieved at previously unimaginable rates, with a decrease in required skill.  A thirty square roof that used to take two or three days could now be done in half a day.

Of course the pneumatic nailer didn’t solve the carpel tunnel syndrome.  Rather, because I used the nail gun ambidextrously, I eventually had to have surgery on both wrists, aggrevated all the more because of the increased percussive rate that automation made possible.  The money was too good to let a little bit of bodily harm get in the way, a feature common to certain parts of our economy that middle-class people are generally shielded from.  Add to this the fact that, armed with nailer, any of my friends could put down a square or two an hour with just a little practice got my greedy little brain buzzing and led to a ridiculous earning power for a dumb young roofer with a bit of entrepreneurial spirit and no real sense of risk.  (They are not kidding when they say that the prefrontal cortex doesn’t fully develop until around age 30!)

A sociological treatise could be written about the way pneumatic nailers and other similar automation led to changes in American roofing, and all home building as well.   It temporarily increased the earning power of early adopters like me, but within a decade, pricing adjusted to the now normal higher rate of output.  In the meantime, crews became smaller and there was a distinct loss of craft.[vi]  Fast roofing, like fast food, did open-up the profession and made entry into it far easier, though with an equivalent fall in wages.  With increased automation, whether in food service, homebuilding, agriculture, or factory work, society can create even more surplus, what with two roofers accomplishing in a day what used to take six.  And, to the benefit of the remaining but shrinking middle-class, it also creates a larger class of lower-paid unskilled workers who, because of this general lack of skill, are unable to demand a fair share of the surplus that they and their broken bodies actually create; whether we are talking about roofers and miners, or all the waitresses, housecleaners, busboys, and landscapers servicing the rich, I was a front row participant in Marx’s growing mobile army of surplus labor.

As a society, and an economy, I should point out, we bank entirely too much on the sort of transition towards increased automation that I participated in; we suppose that they might continue forever.  At the same time, we forget how fleeting an advantage they provide, before society sinks back into a new normal,  perhaps more losers than winners hanging in the revised balance, and nothing more to show for it except higher expectations– unless the universal affordability of useless plastic junk from China is viewed as progress.   But beyond the social-justice implications, by abstracting the process of using energy to turn raw materials into useful goods, turning it into concepts like “automation,” “technology,” and “efficiency,” we forget the true source of our collective wealth.  And having forgotten this, thus focusing on marginally effective policies and moral principles like self-sufficiency or the work ethic, or public investment in infrastructure and differing tax rates, we are unable to understand how it is that our wealth and surplus may be in decline.  Ideas, our economists love to tell us, are “the ultimate renewable resource.”   But the energy and raw materials from which our surplus is actually derived, are not.

The Supply Side

As I argued in Part 2, most of the “jobs” that middle class people have, have little to do with the actual production of surplus.  In fact, as I mentioned, many of my Shorewood neighbors believe on some unconscious level that production should be kept from sight.  No one says it out loud, but attitudes held by middle class people, including university professors,  sometimes imply  in some vague way that productions shouldn’t have to happen at all, except maybe by “creatives” armed with a 3d printer in a converted loft somewhere.   Polite bourgeois society is about consumption, and it differentiates itself  from other, rougher or more ostentatious, parts of society mainly by way of “thoughtful” or “tasteful” or “moderate” consumption.  This of course includes media and even political consumption.  Most middle-class people are of course managers of surplus and its complexities, or are engaged in various amusements or edifications that a high-level of societal surplus permits.

My favorite example, recall, is the humanities professor on sabbatical, taking time away from the teaching of other future humanities professors to think about truth and meaning—which, if done with integrity, will not actually help society create more surplus, but would probably incite a personal protest, at the very least, regarding the sick and broken nature of our world.  For true contemplation must take into account the raping and pillaging of the Earth and its meekest inhabitants as the source of our surplus, and thus the source of the university, and thus the source of the cherished sabbatical year.  No one wants to cut off the limb they are sitting on, but a profound dedication to truth and justice looks past such self-harming inconveniences.

Of course part of this is sour grapes, and it is easy to talk about cutting-off branches when I haven’t one to sit on in the first place.  And in truth, I should be more focused in my criticisms on the surplus luxuries enjoyed in corporate America or by the non-elected political class (i.e. lobbyists, etc) whose daily lives are supported by teams of personal concierges wherever across the globe some or another pet project takes them.  But because the writing and thinking class lives in closer proximity to that, yet more splendiferous, way of life than to the life of a roofer or housecleaner, our official doctrines tend to ignore the way our economy really works, focusing instead on the policies that help or hurt  the 20%’s project of squeezing a little more surplus out of the system.  True, the world of finance, consumer demand, future projections and the resulting bets and hedges can have a great deal of marginal impact on the way we produce and share our surplus.  But assumed without question is that, as long as it is financed properly and there is a market for its products, the invisible world in which energy is used to turn raw materials into useful goods might go on and on without missing a beat—never mind the current state of our energy supplies, raw material reserves, or the atmosphere in which we dump our waste.

A symptom of this way of looking at the economy might identified by noting the latest projections and pronouncements coming out of China regarding its long-term economic aspirations.  China’s economy is a vast and probably irreplaceable source of the supply of all the things consumers want and demand.  In short, most Americans and Europeans pursue “good jobs,” and demand a stable credit market and sensible monetary policy, so that we can trade our money in for the things that are supplied by Chinese factories, and of course those throughout the industrialized world.  (Our “consumer confidence” to be fair about it, also predicts whether we will take out loans, buy new houses, put on an addition, or take a vacation, in addition to buying lots of stuff from China and other places where things are made.)

Because of the “demands” of its own rising middle-class, China wants to move towards an economy based more on consumer spending and on services, than on heavy industry—on having rather than making.  This sounds all well and good to us, because we too have made a transition from an industrial society to a consumer society, where we buy industrial goods mainly from other places, and are more likely to be employed as regional supply managers, Ponzi scheme operators, or marriage counselors.  Most of us don’t make anything.  But this doesn’t mean we don’t want lots and lots of made products.  The Chinese simply want to do same thing we have, and what with all the pollution and terrible working conditions they suffer, who can blame them?

Lost in this sense that a consumer economy is about consuming—period–is the simple fact that we developed our consumer-based service economy only by offshoring much of our industry to China (and by convincing them that doing our dirty work was an improvement on subsistence farming) so that we could cut labor costs and open thousands of new Walmarts and Targets.  The foundational industrial and productive, surplus-creating, part of the economy still exists—only now it is mainly out of sight.  No matter what Mark Zuckerberg says about our “knowledge economy,” heavy industry still exists and is necessary for us to pretend that wealth is created by inventing new apps.   As Zuckerberg puts it, revealing his alarmingly narrow scope of vision and understanding, “The economy of the last century was primarily based on natural resources, industrial machines and manual labor. . . . Today’s economy is very different. It is based primarily on knowledge and ideas — resources that are renewable and available to everyone.”  (lol)

Zuckerberg’s remarks are of course made in ignorance of my central point, here: that facebook and the free time required to become a nation of narcissists exist, in the first place, only if we can collectively produce tremendous amounts of food and industrial products with just a fraction of our time and energy, and consequently still have lots of time and energy left over to sit around searching for the emoticon juste.  That is a far different point than the silly belief that the supply of food and industrial products is no longer the center of the economy.  If there is a knowledge economy, it is where leprechauns ride unicorns to hunt down witches and turn lead into gold.  If China wants to become a consumer society, in other words, it needs to offshore its production (and ours)—the creation of industrial supply—to somewhere else.  Unfortunately, there are a few remaining parts of the world that might be candidates for this sort of offshoring, and naturally the process cannot continue forever.  There is, of course Bangladesh, and maybe Myanmar.  And all of Africa still might be turned into one great sweatshop.  We can’t, of course, focus only on the production of our throwaway plastic party favors and 72” TV sets; the world also needs to maintain some very high-surplus agricultural areas throughout all of this “development.”  But what then?  What is the long term plan, here?  What are we going to do when there is no more “off-shore,” or when we realize that we are one people living on one finite planet?

The vision that sits behind nearly ever liberal utopia of an egalitarian middle class society is one in which everyone is somehow living off a surplus that no one actually creates—as if the supply of goods and food can be wished into existence as easily as a credit default swap or a new app that deposits checks automatically, or a marketing campaign that makes everyone desire and demand an Iphone 8.  Despite the admirable goal of turning the entire globe into Shorewood Wisconsin, an inconvenient truth remains: consumer societies need something to consume and these products need to be made somewhere.  Similarly, a “service economy” requires enough surplus production (and a way of convincing  the actual producers to share it with the non-producers) for a major part of the population to be free from actual production and instead be personal trainers, interior decorators, or landscape architects.

Thermodynamic Economy

At  the risk of repeating myself too many times, let me say once more that the process by which the goods that consumers want , and that must exist in high quantity for people to engage in non-industrial or agricultural “services,” (and thus be wealthy) is quite simple in its basic outline.  Workers take raw materials and use energy to turn the raw materials into something useful to humans.  The smaller the percentage of the population engaged in “necessary” production, the larger the percentage that can pursue luxuries.  This ratio lies at the center of all civilization and can be used to describe them and their level of wealth.[vii]

But the question remains, what tilts this ratio in the direction of few creators of surplus with many users of surplus?  The question “where does wealth come from?” is a question about reducing the number of people or societal resources devoted to basic survival.  It turns out that this ratio, and thus the creation of wealth, surplus, and a polite and decent middle-class society is mainly dependent on one thing: it is dependent on the way and extent to which energy can be concentrated.  Energy concentration is the only real game in town; everything else is a derivative side-show.  This has been true since the beginning of humanity, and is still just as true if we are considering drilling for oil and growing soy beans as it was for the hunting of Buffalo and making arrowheads.  The name of the game has always been to concentrate energy so that a single person or group can make more goods or products in a given time.  Wealth is created when energy can be concentrated so that a society (or individual) has to spend a small amount of its own time and resources on necessities.  (We have migrated a good distance from Krugman’s “obsolete doctrines that clutter the minds of men” as the obstacle to universal wealth; or perhaps we are talking about precisely a sort of obsolete doctrine, though in a way that tosses Krugman’s belief system in with the other clutter and cultural detritus earmarked for history’s dustbin.)

This concentration of energy is often referred to as efficiency, a concept we will discuss shortly.   A few examples can help illustrate the significance of energy concentration.  A transition from hunting and gathering to agriculture is a way of concentrating solar energy.  Hunters and gatherers depend on the same sort of daily influx of solar energy as do farmers, only they must chase after the plants and animals that nourish them.  Useable solar energy, in other words, is spread throughout the forest or across the savannah.  But even then, like all living beings, hunters need to collect more energy in the kill than they expend in the hunt, and by quite a bit more.  As Charles Hall has calculated it, hunting and gathering societies receive 10 calories in return for every calorie they expend.  This ratio, between energy expended and energy obtained is the golden rule of societal development.  If a farmer expends more calories planting, weeding, and harvesting than the crop provides, he or she will likewise starve to death in rather short time.  But because farmers pen their animals in close thus eliminating the chase, and grow crops alongside their dwellings thus eliminating the energy expended in searching and gathering, they were often able to increase this return on energy invested ratio.  A farm is a sort of concentration of solar energy.

The same ratio works to explain modern wealth, as long as wealth is understood as surplus. The great surpluses we enjoy depend on the fact that our farmers can yield not only more calories than they, themselves, expend; it is a based on the fact that they can yield more calories than the remaining 98% of society they also feed expends in all its endeavors.    Of course there are a variety other factors in play—like the simple ability to store a surplus for a sparse times, or whether you use your surplus to build  infrastructure and new technology or opt for a shorter work week and the best wine and cheese, never mind where it will come from tomorrow.  Similarly, the “pillars” that Bernstein discusses do in fact need to be in place for a society to make full use of available surpluses that it might otherwise be unable to exploit.  But without a surplus of energy, these pillars remain unbuilt, even unconsidered.

One might describe the transition from hunting and gathering to our current situation where 2% of Americans can feed all the rest of us as a matter of technology and efficiency—and what is technology, as we understand it, but a way of increasing efficiency, of getting more output per unit of input.  We might at this point reconsider my roofing story.  With the help of an air compressor, 100 feet of rubber hose, and a then $400 nail gun, I was able to quadruple my roofing output, and bonus of all bonuses, hire people who previously didn’t know which end of a hammer to hold and both pay them beyond their previous expectations while making all sorts of money from their work.  This was possible only as roofing gun technology improved and I could concentrate my energy into the pushing of a machine that was quicker than I was without it.  It should be of little wonder, then, that whenever the growth of surplus seems to stall (“a sluggish economy,” as they say), a great deal of hope is placed in new technologies that will provide us more output per unit of input.

But, at the same time, today, there is also a lot of unreflective head-scratching: our technologies have never been more highly developed; so why is it that we are having trouble simply treading water?  This brings us right back to our politics of befuddlement—the main sub-thesis of this series.  If our technologies are better than ever, the problem must be with us. . .  or rather with them, the other side.  It must be the declining work ethic, the policies that sap incentive and the drive for efficiency, or the ones that let our infrastructure decay and create inefficiencies there.  The problem is with kids, who don’t want to learn or work hard—or maybe with immigrants, who do.  That, at least, is what the best and brightest can come up with given all their other assumptions.

The real problem, however, can only be revealed if we look more closely at what we mean by efficiency and at the mammoth and embarrassing gross inefficiency that sits at the heart of our technological wizardry and our awe-inspiring productivity.  No one seems to notice this hidden inefficiency, even though it is certainly set to be the defining characteristic of our age.

The Great Inefficiency

There is a sense, as I have suggested, that efficiency is a matter of concentrating energy.  This may be true of all efficiency.  Even a sharp ax is a matter of concentrating the energy of the swing into a finer point.  But the history of efficiency isn’t just a matter of creating sharper and more durable tools so that we get more output out of human muscular input, it is also a matter of replacing human effort with that of animals and then machines.[viii]  Clearly a horse-drawn plow is more efficient, and creates more surplus, than a regular garden hoe, regardless of how sharp it is.  Equally clear is the way a tractor-drawn plow can outperform a team of horses, just as a pneumatic nailer can outperform hand-nailing.   Add in some synthetic fertilizer and some pesticides to increase crop-yields even further, and it only takes a few people to perform all our farming for us.   The same thing goes for just about any human-made product these days, almost all of which require far less human energy for their creation.  That, recall, leaves our energy “free” for other activities like making art, studying sociology, or watching TV.

But, as I suggested, there is a great deal of hidden overall inefficiency in this system of human efficiency.  I will hazard a proposition that would of course require further research, but that may nonetheless turn out to be true: namely, that we are the most inefficient civilization in the history of our species.  Our alleged efficiency has simply been hidden by a unique set of temporary conditions, the way a wasteful spender with a temporarily high income may still appear fiscally responsible.  Stagflation, Donald Trump, the shrinking of the middle class, The Great Recession, near 0% interest rates on bonds, crumbling infrastructure, Brexit—these are just a few symptoms of the disappearance of these unique conditions over the past 40 years or so.  To continue the metaphor, the temporarily high “income”—an income that I will discuss later—that has compensated for our inefficiency is being withdrawn.  Our gross, whole-system inefficiency, is, in the absence of our dwindling inheritance, windfall, or whatever we might call it, finally coming home to roost.  My stories of disappointment and loss in the first two installments are merely symptomatic of this gross inefficiency finally appearing for what it is.

So what is this gross inefficiency of which I talk?  Here’s how I think it is best understood: when humans became more technologically savvy (or should we say dependent) across the broad sweep of history we became “efficient” or learned how to concentrate energy in two main ways.  First, we did make sharper axes, hotter ovens, lighter automobiles with less wasteful engines, and smaller computers with a high concentration of micro-chips.  We learned which metals, wood species, or plant varieties work best for different things.  But this sort of “intrinsic efficiency” is of lesser import when compared to what we might call “extrinsic efficiency”—namely, the replacement of human energy with other kinds of energy.[ix]  The first revolution in human energy replacement came with the domestication of animals for work, but the biggest and most significant replacement came during the industrial revolution, which Tony Wrigley has rightly referred to as an “energy revolution.”[x]  Now, very suddenly and on an almost incalculable scale, human and animal energy fueled by direct sunlight and photosynthesis, was replaced by machine energy fueled by fossilized sunlight–or as we call them, coal, oil, and natural gas.  While it is true that the average human worker can now produce much more with much less personal effort, the overall level of energy we require is immense and historically unprecedented.   We do not use less energy to create more; we use different energy, and a lot more of it, to create more.

In contemporary modern societies we use unprecedented amounts of energy to maintain our civilization, feed and clothe ourselves, keep ourselves entertained and amused, and otherwise ward off the existential angst of life lived in the denial of our human finitude.   A pre-modern farmer, recall, had to be efficient and expend far fewer total calories of his or her energy than the crop would yield, and at a minimum rate of about 1/10.  The food we grow in America today is grown with a ratio approximately the reverse of our simple pre-modern farmer.  It requires an incredible 10 calories of energy (mainly in the form of oil) to grow a single calorie worth of food!  Talk about terrible inefficiency.  But it can be even worse with some kinds of food.  That side of beef you might put in your freezer—it took about one hundred and twenty gallons of diesel and gasoline to raise and process.  That gives it a negative calorie-in/calorie-out ratio of about 25/1, in addition to the unaccounted sunlight that also helps fuel the process.  This is probably fairly representative of our industrial inefficiency across the board.  It represents the energy that goes into making a modern hammer, pair of shoes, or a new house.   When I increased my roofing output from a square and a half per hour to a four squares an hour, I reduced my own caloric expenditure per square.  But I did not decrease the overall expenditure of energy from all sources, but rather increased it.  The only difference is that the coal that powered the electric plant that powered my air compressor was, at the time, far cheaper than the same number of human-based calories.   By drawing-down millions of years’ worth of fossilized sunlight, in other words, I was able to decrease the amount of energy drawn from living human beings and, for that matter, from the current influx of solar energy that would have been needed to grow food for a larger crew of hand-nailing roofers.

The only way our modern industrial system is efficient is if you look at the energy expended by humans and not at the total energy requirements of the arrangement.  To think or ourselves as efficient is like a Southern plantation owner bragging about his insanely efficient farming methods that allow him to spend half his day sipping iced-tea on his front porch, without mentioning the hundreds of slaves doing the work instead.  As it turns out, if we look at the energy diet of a modern middle-class American, we depend upon an equivalent output to about 150 slaves per person.  Without fossil fuels, in other words, your family of four would require 600 slaves to maintain something resembling its level of surplus.  While the use of fossil fuels represents an important sort of progress over the direct use of kidnapped humans, neither arrangement is sustainable.

Despite the fact that new efficiencies are framed as the centerpiece of a new “green knowledge economy,” they too often amount to the replacement of human labor with machine labor.  The fact that these machines are increasingly small but powerful hand-held computers mainly hides the incredible energy input that occurs in the vast supply chains that turns raw materials into Iphones and laptops, and the inefficient industrial food system that feeds all the genius programmers and entrepreneurs.  What I earlier referred to as “intrinsic efficiency” often has high extrinsic, off-the-books, “externalized” energy footprint.  True, there are no doubt instances where computerized work uses less total energy than human work, but these instances are rarer than the global marketing industry would have us believe.  It never gives usa glimpse, for instance, of the two hundred and twenty million tons of waste that the computer industry, alone, creates each year.  Like all types of supply, our time-saving apps are part of a surplus-creating system in which energy is used to turn raw materials found in nature into useful goods.

As a rule, then, the great surpluses we, in the modern world, enjoy involve the replacement of a moderate amount of human energy with great quantities of fossilized energy.[xi]  Every aspect of the great chain of surplus that characterizes our modern cosmology of consumption– from the 2% of the population that does the farming,  to the industries that create consumer necessities, and then consumer luxuries, all the way to the “ultra-efficient” multinational that has managed to automate all of its data entry and storage or the advertisement  agency that uses computerized graphics instead of hand-drawn ones—all of these create more surplus through the replacement of human energy with mechanical energy fed almost exclusively by fossil fuels.  This is anything but an efficient system.  It is instead the greatest arbitrage in the history of humanity.  No people have required as much energy to fulfill their daily “necessities” as we.

So what?, some may ask.  So we use more energy, but our technologies have at the same time made available nearly limitless sources of energy to keep the gyre spinning in ever widening cycles.  This is a great myth of our time and it is to this myth, along with some very important supporting myths, that I will turn to next.  But, more importantly, is the overriding question of this series, the reason we are asking where wealth comes from.  We ask this in order to understand our current situation and why, as I asked in Part 1, my generation does not have the material advantages and opportunities of my parents’ generation.   Why, amidst  so much technological development and the continued replacement of human power with machine power are we not still seeing increases in our overall levels of surplus, never mind how we divide it up?

In order to answer this question we must return to one we asked earlier: instead of asking where our high and growing levels of surplus disappeared to, we need to ask where they came from in the first place.  This is where we are headed next: how, now more specifically, was the post war generation, and perhaps the baby boomer generation, able to enjoy unprecedented and unrepeatable levels of surplus?  We have answered the question in principle, but need to fill in some blanks and explain why their arrangement is beginning to crumble.

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